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Last Updated: Thursday, 6 September 2007, 11:25 GMT 12:25 UK
UK interest rates kept at 5.75%
Bank of England building
Inflation is below the Bank of England's target rate
The Bank of England's interest rate-setting committee has kept the cost of borrowing unchanged at 5.75%.

But unusually, the Monetary Policy Committee (MPC) released a statement with its decision - a move which more usually accompanies a change in rates.

The statement made clear that the MPC had considered the effects that the recent credit crunch could have on the rate of inflation.

Inflation currently stands at 1.9%, which is below the target of 2.0%.

Rates have not risen since July, but that was the fifth rise in 12 months.

Graph of interest rate changes

Earlier in the year, many economists had predicted that rates would rise to 6% by the end of 2007, but the current problems in financial markets are making that less likely.

"It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households," the MPC statement said.

Credit crunch

Any movement in interest rates would also have been surprising after the Bank of England took steps on Wednesday to help out banks that have found themselves short of cash.

The credit crunch was sparked by the crisis in the US sub-prime mortgage sector, caused by record levels of defaults in the face of higher American interest rates.

Sub-prime mortgages are offered to people with inferior credit records or those on low incomes.

The sub-prime problems spread to the wider global loans market as banks, which were exposed to sub-prime debt, become far more cautious about whom they lent money to.

'Not enough'

With banks less willing to lend money, market interest rates have been rising, which makes a Bank of England rate rise less necessary.

The British Chambers of Commerce said that the MPC needs to go further than just keeping rates on hold.

"Simply keeping rates on hold today is not enough, if the decision is interpreted as a mere short-lived postponement," said its economic adviser David Kern.

"The MPC must acknowledge that further interest rate increases should now be off the agenda, at least for the time being."

How bank credit flows affect people in the UK

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